Fear Driving Rise in Defined Benefit Pension Transfers

Recent research from Old Mutual International (OMI) has found that fear that Defined Benefit (DB) pensions schemes may be unable to meet their liabilities is driving a demand for pension holders requesting to transfer their benefits out of their ex employer’s pension schemes.

Substantially improved transfer values are also a major factor for former employees who hold deferred or frozen pensions when deciding whether to leave their frozen benefits in the scheme or transfer out.

Currently, high Defined Benefit Scheme deficits and record low gilt yields are understandably causing concern. Combined with the relatively high transfer values it is easy to see why the demand for transfers has risen.

The vast majority of clients transferring are in their 50’s and experience in Ireland shows that a large number of transfers are worth around twenty times the annual pension forgone.

When asked the main reasons why people who have received advice want to go ahead with a transfer the following were the major top reasons:

The ability to provide more flexible income in retirement

Large current transfer values

Access to greater tax free cash

To take the benefits earlier than the DB scheme permits

Inheritance planning

Fear of the DB scheme being wound up before their Normal Retirement Date

With the introduction by Michael Noonan of improved and more flexible retirement options on 22 June 2016, we are finding that large and growing numbers of people are choosing to exchange the ‘promise’ of a regular pension in retirement for a large cash lump sum. The “new rules” introduced by Michael Noonan now allow ex-employees of companies to transfer their deferred DB pensions to a Personal Retirement Bond, withdraw 25% tax free, and transfer the balance to an Approved Retirement Fund (ARF).

“With the value of some pension pots being greater than the value of some family homes, it is extremely important that people think very carefully about making a transfer and take independent financial advice before taking the decision.” Johnny Mulholland, Early Retirement.ie

If you are considering transferring your Defined Benefit pension, talk to us. We have advised many people already since the introduction of the legislation change last year and we are happy to discuss your options with you.